Bank of England staff paper estimates pandemic-era mothballing reduced food-service and retail price pressures by 26 and 18 basis points

The Bank of England has published Staff Working Paper No. 1,112 analysing how “mothballed” businesses that temporarily close after a negative demand shock affect sectoral prices. Using a new establishment-level dataset and a heterogeneous-firm model, the paper argues that temporary closures can preserve productive capacity, initially supporting employment and later reducing price pressures during the recovery, implying that pandemic fiscal support aimed at enabling temporary shutdowns may have eased inflationary pressures. The authors construct measures of openings, temporary closures and exits from Google Places data for consumer-facing sectors in major Canadian cities and find that reopenings were an important contributor to business “entry” during reopening phases. They also show that changes in customer review activity differ systematically across continuing firms, entrants and exits, and correlate positively with city-level job vacancy growth from Indeed, consistent with reviews acting as a proxy for business activity. In model simulations calibrated to observed demand declines and temporary-closure rates, removing the option to temporarily close would have increased equilibrium price pressures by 26 basis points in food service and 18 basis points in brick-and-mortar retail in 2022 and 2023, while stronger incentives to mothball raise firm survival and further reduce post-shock price pressures. The paper is published to elicit comments and debate and does not represent Bank of England policy.